Why Vietnam Government wants to borrow VND460,000 billion?

Vietnam government plans to raise VND 460,000 billion loan  which includes VND 217,000 billion to offset the central budget deficit; VND 217,000 billion to repay principal debt and VND 9,100 billion to pay insurance debts.

On the sidelines of the National Assembly on October 23, Deputy Prime Minister Vuong Dinh Hue said that this loan is part of the 5-year budget plan, the annual plan for repaying the principal and covering the deficit.

According to the Deputy Prime Minister, the loan is designed better than previous ones with longer tenors and lower interest rates and helps public debt significantly reduced, debt quality is more sustainable.

Mr. Hue cited, in the period of 2015-2016, public debt was 64.8%, close to the ceiling of 65% GDP allowed by the National Assembly. The debt repayment to total budget revenue ratio also exceeded the safe limit (25%), reaching 27.6%. But the current numbers are better, staying at  56.1%GDP in 2019 and 54%GDP in 2020, and the ratio is 18%.

"There were times in the past when the debt ratio was close to the ceiling allowed by the National Assembly, but thanks to the reasonable restructuring of loans and debt repayments, public debt has decreased," Deputy Prime Minister Vuong Dinh Hue said.

Debt structure: The debt structure is changed from 40%-60% domestic and foreign loans to 60%-40% ones now helping to avoid significant exchange rate risks, Hue said.

Sources: more creditors are in play including  from insurance companies and investment funds instead of traditional banks and financial institutions and the maturities are longer with more attractive interest rates. For example average term for bonds issued in 2018 was 13.6 years, 4 times longer than that of 3 years ago, including 20, 30 year ones. Bond interest rates have dropped sharply in the past few years, from 12% a year in the period of 2011-2013 to around 5% in 2017-2019.

Structure of resources:  in 2020 domestic government bonds of about VND 300,000 billion will be issued, focusing on terms of 5 years or more.

Disbursement of ODA loans and foreign concessional loans is about VND 107,400 billion and mobilization from the state budget and other sources is about VND 95.4 billion.

In 2020, the Government's debt repayment is expected to be about VND 379,100 billion, including VND 348,000 billion of direct debt repayment, of which VND 287,000 billion for domestic debt repayment and VND 61,000 billion for foreign repayments. The obligation to repay the loan for re-lending is VND 30,100 billion (principal payment of VND 19,100 billion and interest of VND 11,000 billion).

"With the above-mentioned Government's loan and repayment plan, the Government's outstanding loan is expected to reach 48.5% of GDP by the end of 2020," the Government report said.

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